OPERATING COST MANUAL - California Department of Real …

1 OPERATING COST MANUALFOR HOMEOWNERS ASSOCIATIONSCALIFORNIA Department OF REAL ESTATER evised January 2016 Table of ContentsPART IForeword .. 1 Using the MANUAL .. 2 PART II: OPERATING AND MAINTENANCE COST DATA100 s Fixed Costs .. 7200 s OPERATING Costs .. 11 PART III: RESERVE COST DATA AND ADMINISTRATION300 s Reserves .. 21400 s Administration .. 26500 s Contingency .. 31 PART IV: SUMMARY AND WORKSHEETB udget Submittal and Review Summary .. 32 Budget Worksheet [RE 623] .. 36 PART V: OPERATING COST MANUAL INDEX .. 51 OPERATING COST MANUALFOR HOMEOWNERS ASSOCIATIONS1 FOR HMEW ONSACOEITAWINMHNEAORNA1 IOIAF orewordThis is the 14th revision of this MANUAL , which was first published in MANUAL is designed as a guideline to assist homeowners associations, developers, and management firms of common interest subdivisions in budget preparation. The materials are applicable, at least in part, to the following common-interest subdivisions: Planned developments (PDs) Condominiums (Condos) Community apartments (Com.)

2 Apts.) Stock cooperatives (Stock Co-ops) Undivided interest subdivisions/TIC (Tenancy in Common)The cost data are considered to be reliable as of January 2016. Costs incurred in maintaining and OPERATING the common facilities in common interest subdivisions are likely to be affected by inflation. Inflationary influences should therefore be considered in budget preparation for budgets that are prepared far in advance of the OPERATING period covered by the data in this MANUAL has been collected by the Budget Review Section staff of the California Department of Real Estate (DRE/ Department ) from a variety of sources, including homeowners associations, professional management firms, service organizations, public utilities, and has been assembled in a form to facilitate multi-purpose use by lay governing bodies of homeowners associations, developers, and professional management firms alike. As such, some parts of this MANUAL may not apply to your situation and other resources should be solicited.

3 THIS MANUAL IS NOT INTENDED TO INSTRUCT HOMEOWNERS ASSOCIATIONS IN ACCOUNTING PROCEDURES OR Department will appreciate receiving suggestions for improvement of the MANUAL . Please send to: Department of Real Estate Budget Review Section 320 W. 4th Street, Suite 350 Los Angeles, CA 90013-1105 (213) 576-6983 Please include your telephone number on correspondence to facilitate follow-up communication by I2 FOR HMEWNSAFCMSIHWTH1 Items to be budgeted have been divided into the following five categories:100 s Fixed Costs (taxes, insurance, etc.)200 s OPERATING Costs (utilities, goods and services)300 s Reserves (for replacement and major maintenance)400 s Administration (legal, accounting, etc.)500 s ContingencyEach of the first four major categories have been divided into subcategories or into component line item expenses to facilitate the inventory and budget preparation costs that have been developed for condominium developments are those customarily associated with low-rise or garden-type condominiums.

4 Extra care should be taken in using the format or content of this MANUAL when developing budgets for high-rise and luxury StructuresTypically, a high-rise condominium project will employ a full-time staff and additional employees to perform maintenance and repair. Moreover, some of the building components may be under full-service contracts so that the need for replacement of major components may not arise. All high-rise (over 70 feet) buildings are subject to certain safety codes, , fire and elevator safety, which may require the installation of equipment at a specified date. Funds for the purchase, installation, and maintenance of such equipment should be included in the limited list of the high-rise components not included in other sections of the OPERATING Cost MANUAL are:Central heating and air conditioning systems (HVAC) comprised of chillers, compressors, and boilers; cooling towers; gas-fired boilers equipped with heat exchangers; emergency diesel generators for emergency purposes; fire sprinkler system with storage tanks and diesel fuel pumps; master antenna systems; building security systems; closed circuit TV systems, electric door releases; intercom systems; house phones; music and paging systems; glass caulking; window washing/cleaning; compactor maintenance; local license inspection fees; exterior surface repair.

5 To Addendum A for a limited checklist that may be submitted with the budget for high-rise or mid-rise limited list of the high-rise personnel and indirect expenses not included in the OPERATING Cost MANUAL are:Manager(s), engineer(s) and assistants, head janitor and assistants, security guards, valet(s), door attendants, PBX operators, concierge, front desk; relief, vacation, and bonuses; workers compensation, and payroll of the complexity of budgets for high-rise condominiums, a 10 percent contingency factor is not considered unreasonably components not included in this MANUAL :A common interest subdivision may include a common facility which is not covered in this MANUAL . In budgeting for such a facility, it is best that it be broken down into its component expenses. In the case of a stable, for example, consideration should be given to such component item expenses as electricity, water, custodial service, and painting. It should be possible to use data in this MANUAL to calculate the various component costs and to estimate the aggregate cost of maintaining and OPERATING the facility.

6 EVEN THOUGH AN AMENITY OR COMPONENT MAY NOT BE INCLUDED IN THIS MANUAL , IT SHOULD BE INCLUDED IN THE use this MANUAL , those responsible for budget preparation should first make a list of all expenses that the association is likely to incur. An analysis of the governing documents for the subdivision and the association is extremely important in the budget preparation process. The governing documents enumerate the duties of the homeowners association and specify or suggest areas in which costs will be the ManualPART I3 FOR HMEW ONSACOEITAWINMHNEAORNA1 IOIAThe cost data in Part II of the MANUAL is applicable for a majority of developments located in and around major population centers of California . Data provided is for Northern California and for Southern California , but a further breakdown into smaller geographical areas is only provided for certain expense items, , landscape maintenance for the Palm Springs area. No cost data has been developed for special resort areas such as Lake Tahoe, where costs for goods and services are likely to be substantially higher than costs for comparable goods and services in metropolitan, urban , and suburban III and IV of this MANUAL consist of reserve cost data and budget worksheets to assist in the compilation estimate certain expenses, , carpeting and painting, it is necessary to have reliable data concerning dimensions of common areas and facilities.

7 One of the first tasks of the governing body or management agent of an association is the preparation of a complete inventory of the areas and facilities to be preparing the inventory, it is best to start with a map, diagram, or sketch delineating all of the common areas and facilities. For completed or existing projects, the best source of information in completing the map and project inventory is a set of as-built plans covering the project common area. These plans are not only helpful in preparing the project inventory, but also in coping with certain practical problems of management such as turning off water in the event of a broken water construction plans for the common area of a planned development are not available, the recorded map of the subdivision can serve as a source of information in preparing the project inventory map. For a condominium project, it will usually be necessary for the budget preparer to obtain a copy of the condominium plan from the county recorder or subdivider, as well as: Copy of the final or tentative map.

8 Architectural elevations and plan views. Engineering plans. Landscape architectural possible sources of information to prepare the project inventory map include a land-use map (usually available from the city or county planning Department ) and the county assessor s map. If all else fails, a reasonably accurate inventory can be taken through the process of measuring and counting areas and facilities in inventory of fixtures, furniture and other personal property of the association is usually best made in the beginning by a physical count and by measurement where appropriate. This is probably also the best method for inventorying some items of real property such as lighting is recommended that associations consider verification and, if necessary, correction of their major component inventory after project start-up. This may be necessary to comply with Civil Code section AssessmentsProration is a procedure to determine the amount to be assessed to each unit in the subdivision to meet budgeted expenses.

9 Prorations may be either equal or variable. Equal proration involves the simple process of dividing the total costs of a budget item by the number of units in the subdivision. Variable prorations entail the use of a factor or factors that differ from one unit to the next, , square footage of floor space. Equal assessments should be used wherever reasonably equitable, since variable proration can be a complicated and controversial prorations should be employed only when services are provided to units in unequal proportions. DRE regulations allow the use of variable assessments against units only if one unit will derive as much as 10 percent more than another unit in the value of common goods and services supplied by the association. Examples of services provided in unequal proportions directly to units are insurance, domestic water and gas, if applicable, and exterior and roof maintenance (the budget items for exterior and roof maintenance are ordinarily the reserves to carry out this maintenance when it is due).

10 PART I4 FOR HMEWNSAFCMSIHWTH1 Within a particular project, more than one proration factor may be applied. For example, consider a condominium project with central air conditioning, a swimming pool and valet parking services. It would not be unreasonable to allocate these expense items to each unit as follows:1. Central air conditioning costs on the basis of the square footage of each Expenses attributable to the swimming pool equally for each Valet parking costs according to the number of parking spaces for each unit in proportion to total parking spaces for the example of how to determine whether proration is advisable is presented in Figure A :Assume a budget for a 100 unit condominium project consisting of 50 two-bedroom units of 1,000 square feet of floor space each and 50 three-bedroom units with 1,200 square feet each. There is a single master meter for domestic water supplied to the project. Electricity and gas are individually metered to each condominium the completed worksheet (see Figure B ), variable assessments can be computed as follows:Highest Assessment - Lowest Assessment Lowest Assessment = % Differential ($ $ $ = ).